Unfair Contract Terms

Businesses and individuals who create contracts cannot incorporate unfair contract terms into their contracts which could potentially place you at a disadvantage. There are various pieces of legislation that can be used to offer an added layer of protection to consumers and some of these will be explored in this guide.

The Unfair Terms in Consumer Regulations 1999

The rules under this legislation state that fairness must be applied in the contract formation process and this should relate to the terms of the contract that are established between a business and a consumer and suppliers or sellers. This legislation specifically relates to the terms that have not been individually negotiated so any unfair term that may appear in a contract would not be legally binding on the consumer.

It would be sensible at this point to briefly explain how a consumer is recognised under the legislation. Section 3(1) states that a consumer is any individual who acts for the purposes which are outside of their business, trade or profession. Specifically, this restricts the definition of a consumer to an individual. Therefore, businesses and companies are excluded from this consumer law.

Supplier or Seller

A supplier or seller is important too. This would be a legal or natural person who is covered by a contract under the regulations and they are in a public or private sense acting for purposes relating to their business, trade or profession.

When it comes to the ‘terms not individually negotiated’ element of the legislation this would be applicable to all of the other terms in the contract between a consumer and a seller or supplier which have not been discussed.

These would typically involve standard terms of business which would be relevant to the specific type of contract that you would enter into. These are already written into standard contracts and are not usually negotiated to fit in with your requirements.

If any disputes arise as to individually negotiated terms, the burden of proof would rest with the seller and/or supplier who would need to demonstrate that these terms were individually negotiated. As a general rule, terms are always treated as being individually negotiated when they have been pre-drafted before the contract is formed and the parties don’t really have any say in whether they agree or disagree with them.

Applicable Exclusions

As with many areas of law, there are exclusions that can be applied to this rule. The 1999 regulations state that the test of fairness is only applied in relation to subsidiary terms contained within a contract, but the fairness test can also be applied to all other terms which are not in plain English. Core contract terms cannot create the subject matter of a fairness test if they are worded in plain English. Core terms within a contract are usually terms that both parties know about and understand so they don’t need any form of regulation.

Unfair Terms

Unfair contract terms should never be incorporated into a contract and they can be defined as any term that places the other party at a disadvantage or if it creates a significant unbalance of responsibilities or rights which result from the contract. When unfairness is being established, the term will be assessed looking at the wider context of the contract and the situation under which the contract was created.

If there is an onerous term in a contract, the Courts will firstly consider whether it is detrimental to the other party who are involved in the contract. If, for example the term related to the cancellation rights of a supplier, this would be deemed as a fair term, provided that the supplier also has rights under the cancellation clause.

Good Faith

Contracts should be created in a fair and open manner. This is referred to as the requirement of good faith. In order for a contract to be created with complete transparency, all of the terms within the contract should be known and expressly stated, while being written in clear, easy to understand language and free from any hidden traps or clauses that either party don’t know about. Fair dealings would suggest that a seller or supplier should intentionally or unconsciously take advantage of a consumer’s position, unfamiliarity or lack of knowledge with specific types of contracts. The seller or supplier should never take advantage of the consumers weaker position, nor should they use bargaining power as a weapon to avoid the creation of a fair and open contract.

Plain English

When contracts are formed, they should be written in plain, intelligible language. This means that all terms in the contract should be communicated in such a way that is easy for the other party to understand. Sellers and suppliers have a responsibility to ensure that any terms of a contract are written in a plain and intelligible manner for the consumer. If any doubt arises as to the meaning of a specific term or terms in a contract, the meaning that the consumer takes from this term is the one that will prevail.

You should never feel like you are being offered an unfair contract terms. If you are unsure about the contract that you are entering into, it would be a wise decision to seek further legal advice from a solicitor experienced in contract law.

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